By Sean Gallagher  |  Posted 2003-07-02 Print this article Print

McDonald's made its first foray into collecting daily sales data from stores through an electronic register. But rather than turning to a solution from outsiders, McDonald's decided to cook up its own.

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McSystems: Made For Who?
The back-end to McDonald's POS system is the "in-store processor," or ISP. Running on a customized personal computer configured with the SCO Unix operating system (which, at the time development began, was the only commercial Unix operating system that ran on Intel-based PCs), the ISP helped turn POS data into information that McDonald's could use to plan its supply chain—recording what food and materials had been expended over the course of a day based on sales information from the POS terminals, and additional information from the store manager.

The data from registers was sent over modem to McDonald's corporate headquarters. The data also was transmitted to its partners—including Martin-Brower and Perlman-Rocque, which distribute everything from food, to trash bags, to the clothes worn by McDonald's crews—to drive store replenishment. The ISP also provided restaurant managers with software to manage employees' schedules. "The process of doing that—it used to take eight to 12 hours a week for an assistant manager just to schedule the crew—was shaved down to two hours," says Dill. It also automated inventory management and reordering of nonfood supplies, such as trash bags, bathroom soap and crew uniforms—things that had been done all on paper before. Dill estimates the ISP saved each restaurant manager 30 hours a week in paperwork.

The data sent back to McDonald's headquarters was collected in database servers from Tandem (later acquired by Compaq), and then transferred to the burger giant's IBM mainframe systems. The aggregated data provides a number of ways for executives to track restaurant performance, measuring metrics such as the time from when orders were placed to when they were cleared from the system, indicating they were prepared and delivered.

The system wasn't exactly unique. Mrs. Fields', the cookie chain, was sending daily sales data back to its corporate offices from POS systems in the early 1990's, says Paula Rosenblum, research director at AMR Research. In fact, says Rosenblum, the in-store processor element of McDonald's solution was common to many POS systems as far back as the 1980s. "Point-of-sale systems are always integrated with some sort of back-office computer," she says. The main difference in McDonald's software was its McDonald's-specific nature—including its restaurant management applications (such as the crew scheduling and inventory-management software on the in-store processor).

Even so, McDonald's clearly didn't have to develop its own point-of-sale system, especially by the time it made its PC POS mandatory in 1998. Commercial systems tailored to the quick-service restaurant business based on technology similar to that of PC POS were widely available, from vendors like MICROS Systems, Inc. of Columbia, Md.—a leader in POS systems for the quick-service restaurant industry and other hospitality businesses—and NCR. "Retailers have a propensity to want to roll their own POS systems," Rosenblum says. "I don't understand why they do it—there are solutions out there." Despite all the effort McDonald's put into the system, franchisees balked at putting it in their stores. Roughly 70% of McDonald's restaurants are owned by franchisees. McDonald's started putting PC POS in its company-owned stores around 1993.

"We developed something good for all our restaurants," says Dill. "But it was hard to get licensees to commit to it." Some franchisees already had established relationships with other POS vendors, and many were concerned about how much of their data would be sent back to McDonald's corporate headquarters, according to Dill. "There was always a concern about Big Brother looking over their shoulder," Dill says.

Franchisees were worried that, for example, McDonald's might use a snapshot of data from a bad day to judge the performance of a restaurant; they didn't want McDonald's looking at the raw sales data.

Eventually, McDonald's started to overcome some of the resistance, according to Dill. But the company didn't mandate that franchisees use its PC POS system until 1998—about five years after it had been deployed in company-owned restaurants—as part of the company's "Made For You" kitchen upgrade, a new food preparation system that cooked each customer's meal to order.

Ironically, the "Made For You" system slowed the order-making process by minutes, wiping out the speed benefits delivered at the register, according to Dill and some McDonald's franchisees. "In the end [Made for You] was one of those ideas that slowed up service and made service worse," says Dill.

"The goal was getting the customer what they wanted, and warmer and fresher, but the thing we didn't realize deeply enough was the impact of the changes to the cooking system in a restaurant that does significantly more volume than competitors."

PC POS and the in-store processor did manage to give McDonald's its first real grip on its supply-chain data—and with the cancellation of McDonald's Innovate project, it remains as the backbone of McDonald's system for collecting operations data from its restaurants.

But now McDonald's is looking to a newer system—and it's looking outside the company.

McDonald's in May sold off its interest in eMac Digital, which had a part in developing a POS system—called NewPOS—for some of the company's non-U.S. operations. But, at the same time, McDonald's signed on with eMac to have it develop a next-generation POS for its American stores.

Perhaps the only way McDonald's would ever be comfortable with having an outside vendor involved in the way it sells hamburgers was to create that vendor itself. And in its relationship with eMac Digital, McDonald's may have finally found the balance between building its own system and buying from an outsider. It gets the close integration with its business practices that the company desired when it decided to develop its own POS system a decade ago. At the same time, McDonald's gets the benefit of offloading the actual development and maintenance of its POS system on an outside vendor, who (as it commercialized the new POS system) can spread the cost of development across multiple customers, reducing the investment McDonald's has at risk.

And the fast-food giant can now focus on hamburgers instead of cooking up its own code.

Sean Gallagher is editor of Ziff Davis Internet's enterprise verticals group. Previously, Gallagher was technology editor for Baseline, before joining Ziff Davis, he was editorial director of Fawcette Technical Publications' enterprise developer publications group, and the Labs managing editor of CMP's InformationWeek. A former naval officer and former systems integrator, Gallagher lives and works in Baltimore, Maryland.

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